Consequences of creating an international permanent establishment

Abstract

"The term 'permanent establishment' normally inte1preted suggests something more substantial than a license, a letterhead and isolated activities. It implies the existence of an office staffed and capable of canying on the dayto-daybusiness of the corporation and its use for such purpose, or . . . the existence of a plant or facilities equipped to cany onthe routine of such business activity. The descriptive word 'permanent' ... indicates permanence and stability. "1 Chapter one of this thesis examines the definition and characteristics of a permanent establishment, having as a basis the Commentary to Article 5 of the OECD Model Tax Convention on Income and Capital. The period of duration, as well as what may be deemed to form a permanent establishment are issues dealt with in the same chapter, together with an introduction into the analysis of dependent and independent agents and subsidiaries as permanent establishments, two topics to which subsequent chapters of this thesis have been devoted. Chapter two is entirely concerned with the issue of subsidiaries as permanent establishments, a topic which has steadily evolved through case law. An analysis of the conditions necessary to form a subsidiary permanent establishment, horizontal and vertical integration and 'pass-through agreements' coupled with the question of subcontracting are a few of the complexities involved in the operation of a subsidiary permanent establishment, which are examined in this chapter. The subject of chapter three is the agent as a permanent establishment, a concept which, although catered for in Article 5, paragraphs ( 5) and ( 6) of the OECD Model Convention, differs inmeamng under the spheres of Civil Common and Private International law. A discussion of the meaning of 'agent' under the three spheres of law seeks to harmonize this meaning, also focusing upon the interaction of paragraphs 5 and 6 of Article 5. Chapter four is concerned with the EC Arbitration Convention, its salient characteristics, and how it is applicable to permanent establishments. The arbitration procedure under the Convention is examined, together with suggestions for its review. Finally, the conclusion takes a very brief look at the interpretation of tax treaties, and the role of both the Vienna Convention on the Law of Treaties as well as the OECD Commentaries.